How to buy property without a 20% deposit

When you consider that a small flat in Sydney could set you back  half a million dollars, saving a 20% deposit to buy that flat - $100,000 - can seem an insurmountable task. That's where mortgage insurance can help.

Lenders Mortgage Insurance (LMI) may be an added expense, but it offers buyers the opportunity to get into the property market earlier, without saving an entire 20% of the property's purchase price as deposit. 

What is Lenders Mortgage Insurance (LMI)?

LMI protects the bank or lender, should a mortgage go into default. This guarantees that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan. While a 20% deposit generally provides a good buffer against any drops in value over the life of a loan, LMI can also provide the same protection, meaning borrowers can purchase property with a smaller deposit. 

What's in it for you?

For the borrower, it may seem that LMI is just another expense to cover. However, this insurance means that buyers are able to enter the property market with a deposit as small as 5%. In the example above, for a $500,000 property, this means that the deposit size needed reduces from $100,000 to $25,000. 

Plus, if the market is hot and prices are rising rapidly, paying LMI so you can buy now could be cheaper than taking the time to save a larger deposit. In the time it takes to save a larger deposit, property prices may well have surged by more than the cost of the LMI, making it good financial sense to buy sooner rather than later. 

What you need to know about Lenders Mortgage Insurance

The insurance premium is generally a one-off payment, but you pay be able to roll it into the loan amount so that you are paying for it month-by-month along with your mortgage. 

There can be a big difference between premiums paid between a 5% deposit and a 10% deposit, so it may be worth trying to gather together as many extra funds as possible, even if you can't reach the full 20%.

Our Toowoomba-based Mortgage Broking company can assist you in securing the right loan for property purchases Australia-wide. Get in touch with us today!

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